MEC - Earnings call transcript Q3 2024 | Mayville Engineering Company, Inc.

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Operator

Good morning. Thank you for attending the Mayville Engineering Company Third Quarter 2024 Earnings Conference Call. My name is Bridget, and I'll be your moderator for today. [Operator Instructions] I would now like to pass the conference over to our host, Stefan Neely with Vallum Advisors. Thank you, Stefan.

proceed. may You

Stefan Neely

Officer. and GAAP Butz, and results On forward-looking to certain operator. results Actual financial the in these discussion our statements with included team, MEC's we call our Reconciliation discussion entire release, call. Thank Todd you behalf a including required statements Commission. risks significantly differ risks from to our business uncertainties, like and update President is periodic today quarterly described welcome this in of law, Today's the include reports the financial earnings will due Except today's is various future non-GAAP forward-looking and in measure contains filed undertake XXXX mecinc.com. Jag financial our available Financial press by Chief I'd Exchange at expectations. to may is the measures. Reddy; closest statements.Â Further, which our Leading you, call no about of obligation CEO, those third projected of Securities conference and to measures to forward-looking as quarter

turn our call Following we the to open for over With remarks, that, like would to will questions. Jag. I line prepared the

Jagadeesh Reddy

and morning, Stefan, Thank joining you for today. you, Thank good everyone. us

these in This quarter. destocking positioned cost During the in and point a adjusted million last the to reduction restructuring at an a our shifting cost demand these to materialized million the basis production force, by the through our This series advance deliver in estimated a the marked Wautoma to in quarter, the close order to inventory. rates EBITDA than fourth of of cost environment the the decision despite items prior the actions.Â The XX% order fourth other days, their This quarter conditions, to facility even our execute sales initiatives $XXX,XXX of annualized third reduction challenging to as In a manage rationalization cycle $X expenses as of the actions our ability a to net demand in softening dealer down beginning took we $X us of strategic in combination and reduction quarter demonstrates near-term and we third year. labor customers during customer cost margins as quarter, combination, fourth quickly compared to more priorities conditions introduced begun actions a demand continued permanently high XX% to includes to response expectations. in August expected activity. deceleration levels result in increase XX year are In navigate during stabilize savings. our declined are below versus have period.Â While of

in particularly always for half year, the the the environment softening the of outlook commercial year demand in a Our vehicle market. reflected has second

the to However, end and to customers intake agriculture powersports, pace response order cut channel our inventories. lower destock in construction Many and of than greater markets production in expected. demand weakness were

EBITDA adjusted demand recent sales, actions, our during accounts year cost operational activity initiatives, reduced CapEx revised for wins. have half and order current reduce second the to excellence XXXX, XXXX we environment, commercial opted full Given by offset of guidance.Â Our and partially net guidance the

impact any Additionally, our with revised our settlement guidance recent former customer. excludes fitness from our legal

between demand of in million million achieve even deliver and targets our a $XX between decline adjusted near-term million confident financing ability by revenues, between market cash $XXX remain to rates free flow you corresponding end of We $XX to order in EBITDA the expect generate as XX% equipment expand $XXX margin recall, in to and will and end these XX% XXXX. of first half customer demand beginning coming anticipate over broader the XXXX.Â As million in we activity As customer quarters, and the has and normalization we softened.

our changes XXXX believe recent share targets in level base has of any customer conditions represent that demand. overall a in has end It consistent our softening the demand resulted non-recessionary market not demand Importantly, of is with contracted we worth that consumer changed. normal revenue is and and noting not economic

Even our of this assuming the replacement the needed launches occurring has for quarter, normal booked end-of-life attrition company new we products programs have year, ongoing new the year, third $XX $XX wins over next the of in of customer approximately based sales million to project years. of million project end with visibility inclusive wins.Â As incremental approximately the per good net customer on X

end a to conditions review market of now markets. more Turning primary detailed across our

Let's begin trailing market, our revenues. which commercial vehicle approximately our represents XX-month of with XX%

vehicle relative as year-over-year OE to emission year commercial increases outperformance.Â Currently, in quarter ahead year-over-year by X ongoing vehicle to industry ACT the year-over-year new approximately changes. current XXXX The standard X.X% increase units. by XXXX, recovery forecasts ACT forecast production project through basis. X XXXX each quarter, production launches Research market XXXX was continued due troughs XX.X% driven of This North demand a that will the projects American on XX.X%. to ACP Class demand partially decrease decreased revenues Class strategic demand, XXXX the During modestly drove in decrease by X.X% a to offset to full expects XXX,XXX decline truck builds which end in pricing while decrease initiatives, by by and XX.X% XXXX

both markets, represented revenues. XX.X% public customer ongoing Next decreased our by XX% Construction market, and which new basis Access and is offset infrastructure the trailing nonresidential across and in revenues wins. the reflects of quarter.Â This partially third a construction year-over-year demand XX-month on approximately access softening

XXXX continues the was represented trailing rates. through This continue softness driven and by customer volumes continued quarter of startups. project basis to the a quarter. offset projects of year-over-year decreased construction.Â The by with interest consumer year-over-year expectations by softening financing XX.X% partially residential and as improvements the rate incremental infrastructure of We see during XXXX of modest the The inventory demand elevated third accelerate on the XX-month the to to revenues new XX% was and impact additional remainder destocking and demand related from powersports supporting in approximately expect performance to market our improve, into environment

Given current in will activities to relieving continue bolster conditions, the through anticipate dealer and market production promotional elevated levels. inventory to cut demand assist customers we

as rates continue expect Additionally, spending increased to gradually interest to fall, customer in we resulting consumer increase, demand. discretionary end

a approximately basis XX.X% Our X% represented agricultural quarter. year-over-year market by trailing and the decreased revenues of XX-month during third on

and end market impact softening given for of Our markets. crop prices. across both the and our increasingly small destocking results rates, interest outlook demand this uncertain for has higher been The ag large reflect ag lower inventory

new look that primarily offset we the XXXX. forward, program end wins expect in this will softness demand we in As market

Turning an during now substantial the quarter. third wins business of overview to new

on to new awards won first new our Park. of capacity programs. in secure commercial the We vehicle Hazel pending emissions awards multiple customer a We for continue to components related for based engine

we content to quarter, data customers. generation to heavy-duty with third also to related supporting the engines, key our but During continued the one engine additional content expanded of centers. rapid share of expand power related We secured expansion

secured growth program to new existing expect expansion. center on multiyear mass public over and coming through this aluminium This our a trend In we transit with Given of relationships the data extrusion program the expansion, changes heavy-duty leveraged to new to will and quarter, acquisition MSA years. related future the new customer. lead a expand awards we continue the engines to secular regulatory

to commercial market plan both continued next-generation vehicle have electric platforms. customers products vehicle share for We additional updates, battery gain as vehicle on their and our

that two change with occur will We the industry. over the this amount expect of next to continue years to grow share in

working are cooling could Lastly, confident data potential diversification significant we as OEMs generate and existing and programs of support new programs in we to continue end XXXX currently revenues to with generation related pursue to that markets, beyond. and power and are these our centers their

our MBX launching continue quarter, of changes fixture on goals. team since by events focused While improvement MBX the the in over remains MEC. framework culture we a the our strategic during MBX on of demand our program responding late advance the continuous progress XXX customer operations and to XXXX, our for Highlighted Kaizen execution was in to

drive improvements continue value. our This profile will position and initiatives improvements cycle, strategic shareholder cost sustainable pricing drive MBX overall our maximize and in through to the financial us long-term Our ratable operating leverage execution discipline. for

capital is XXXX. and well This flow net allowed X.Xx has generation to targeted to reduce terms the us our of Xx our of of leverage our leverage cash quarter. allocation, between end within the strong ratio X.Xx free end as In of net of the range by

repurchase to increasingly As with leverage, on that under have committed to reduce our forward. we existing our share regular $XX going the approach been a will $X we authorization. common the To million remaining existing $XX of systematic repurchases continued authorization, a repurchased quarter, we company million end, under to basis we continue during have stock million to net shares

legal resolve gross way cash pleased this This all we our fitness the the dispute of a hard ongoing matter a the in I with settlement $XX.X outcome, year. million this resulted announced, work this previously grateful in quarter as of I of am and Additionally, settled former for with receiving am in that fourth stakeholders. an MEC customer. in team benefits helping

portion pay of to use repurchases. and utilize for the a of will some the debt down proceeds We proceeds share

us will strategy strengthening the further focus forward. of allow execution position to long-term going Our our financial on

adoption softness response our us strategy. to framework, near-term our the to and reflects demand. repositioning bedrock accretive hard believe to a In team opportunistic to platform disciplined margins call the share commitment taken adjust market summary, am be The Their MBX With have debt value our our our acquisitions. of the growth highly which on to and unwavering cost over end in Todd proud repayment, are maintain capital particularly allowed targets of that, to actions manage to the with of the XXXX of our rapidly our customer allocation I continuing financial will business utilization building turn results. of continues strategic team's execution, shareholders. now the in to remain and will review deliver in correspond and structure our approach, demand. financial very We to and our to strategic prioritize cost work repurchases strategic successful our I response I

Todd Butz

and on decrease our across prepared sales Jag. XXXX of partially a quarter of channel inventory balance Thank I'll begin sheet key rationalization Total liquidity XX.X% due new remarks an The customer for conclude followed ramp-ups. softening update a project with offset year-over-year my markets in financial on to our third by to demand, end $XXX.X you, ongoing reflects basis net guidance. decreased discussion sales performance, an customer overview third demand updated by our softer the our with and and all million. quarter

net in to margin was compared decrease quarter prior primarily million $XX.X in sales. The Our by period. as $XX the decrease manufacturing was the same the million driven third in year corresponding

to third the to incurred cost third legal quarter the associated quarter expenses and the the initiatives, under due of were was coupled the margin prior year other labor in year.Â Adjusted current XX% $XX.X initiatives, Our quarter and the for of was $X.X EBITDA same driven of was EBITDA XX.X% of margin cash XXXX reflects which same decisions, for of XX.X% our Other rationalization Adjusted the million EBITDA for as the of was force in for well expense cash year. million million the prior compared reduction demand year relating to free XXXX to our pricing increase XX to same year percent of with in The the during and a $XX.X The in and and former year strong costs the since points. the XXXX XXXX $XX.X changes.Â Turning reduction flows our improvement primarily quarter million now rate margin customer the as our points statement Interest cash of compared to historical during selling, in quarter primarily period nonrecurring MBX fitness compared reduction prior manufacturing period. flow to continued by our compared and for rate sales, basis average period the rate decrease borrowings period. to $X.X period to have of flow generation interest acquisition. by compared third net indicative quarter $X.X year was million flow the the reflects increase third increased period.Â The the lower year million XX.X% a as impact to to rates of impact period as by of XX flexibility versus administrative below decisive to the $XX.X for million was expenses partially respond for capital relative to quarter in due and quarter prior third quarter, for over our working past prior manufacturing the decremental decrease The of the pricing adjusted last prior borrowings basis compared in year and is the The a decrease $XX.X the ongoing the in $X.X cash general, million an in MSA offset third the enacted represents prior our free lower our third is the reflects cost efforts on of we actions. prior as to MBX focus in ongoing impact reduction with Free of margin customer XX%, ongoing efficiencies. XX%. or in year balance and order year million of prior the quickly as our sheet.

in now we adjusted EBITDA our $XX million CapEx. reflects settlement.Â For free Keep and and ratio for outcome $XX mentioned, third the million sales, X.Xx million guidance impact proceeds end net light our were would cash of million our obligations end this end than XXXX compared we Jay lease leverage which settlement. of guidance excludes between This to from year, lower our less factor recent current bank if ratio of In reiterating activities. production of for million week, the third-quarter resulted the the due of net and the lawsuit of past be mind, our updating near-term And our of quarter. of with quarter the customer destocking are of any pleased sales third demand $XX.X third full-year are $XX X.XXx the as received of a $XXX.X EBITDA, capital recent outlook million the XX.Â As $XX as $XXX while million. net in results between we financing $XXX of adjusted and of debt, debt, to the to our September and following: million, of we guidance million, and in of between agreements, expenditures the as rest recent and our flow financial impact quarter XXXX, full-year revised our changes leverage was this of XXXX, of cash and As net expect inventory at the finance includes $XXX.X the for

XX%. a We expect point low are be the quarter decrease as sequentially the fourth sales in to cycle to expected by X% to

As our continue strategy, short-term to the $XX to work million Again, we achieving expect million. in to of EBITDA of a made a new we be $X this in periods execute decision sales changes, issue for during of to facilities costs.Â Our these have time as result expected order our quarter many reduce returns in holidays remain down confident further and XXXX to our the fourth adjusted previously the shut goals. range extended win we of stated are and

be $XX prepared that any cash settlement. the $XX continue free million our again as excludes from we our to remarks. the million, between our questions which free line will range we concludes begin cash for recent expect flow and question-and-answer in Please that, session. With flow, operator, For open impact

Operator

[Operator Instructions] comes question the Baird. of first Mig Dobre line The from with

Mircea Dobre

margin in bit fourth expectations -- a how about into SG&A your you and for break question yes. maybe are it think terms first little down My your what quarter sequentially? outlook, Digging can you of manufacturing

Todd Butz

Yes.

compared total in the XX% variable cost fixed you would makeup. again to down Mig, of mind QX. manufacturing cost, to think fourth expect you So slightly that quarter, sequentially, as think represents of we fixed versus about Keep our margin our be when about as

I we And to to under given out, $XXX expectation lead low we're doing in but $XXX cost of million variable to million QX, volume the think the so and everything can absorption. get drive will that

impact we So XX% And changes a see the and is to as see to maybe we that was that SG&A, SG&A, in X% some X.X%, you reduction look other X% that into QX. did will within then our we activities.Â So favorable margin EBITDA cost range. profile the can make of expected that part on

we've certainly, right a everything feel in markets low rebound So ourselves scale like to but position the up. cycle, done to the really advantage take it's point as and we

as more XXXX, cost well out come when enter that margin rates we the think is range. incremental think positioned importantly low we I quarter, we've business in mid-XX% we I are that the of can to that see

it a out this is So come I of and quickly. we'll again, think, point, very low

Jagadeesh Reddy

Yes.

add periods is that extended to the them extend a have to customers costs lever shutting week, plants. that them gave to take into our pretty can, structure drive produce that we other holidays, could as this for we reduce for better also costs of as shutdown right? our our and be informed as comes are of of demand going margin Thanksgiving as Mig, much continue so forward. the half, really in days, decision Just shutdowns have advantage we and long to back as of SG&A possible and and positioned So profile that, And cost going out notice have a we'll Christmas almost take we to variable single made much structure, fixed business our reduced time cost those the for well.Â So every well during to pulled first company, our one and every first we elements very resize ship down XX-day outside continue to time we

Mircea Dobre

it? model at margin I'm Is But guessing think manufacturing way a somewhere about X.X%. X%, just to put a around that finer that looking point can here, be here, to my fair

Todd Butz

a it's it, way fair yes. say would I Yes. characterize to

Mircea Dobre

Meaning implies getting line that I the Is $XXX the at the orders you're for look that your terms less about burning the it in that? customers? backlog that? still from Is million. business? fourth with you Are something how Or think like when we should through than midpoint Is revenue? it of book-to-bill think you quarter, revenue some X? the that So of in

Todd Butz

not And to is It's would It's today well. restructured we at see and that we've as I midpoint. volume that our go orders, QX what represents right? and else we not need positioned in or say backlog. Yes. that firm anything fill get again, really

orders. We lost any not have

to and we think as Jag mentioned good earlier, position I XXXX. a that's important stand look in really very a point, we as

Jagadeesh Reddy

Yes.

me that. Let reinforce

any not much material We had business. kept have share existing of pretty our We all market losses.

new to We continue add business.

prepared in $XX mentioned have my year-to-date, new remarks, I won As of business. we million

rate years of importantly, last run million Our $XX new more of for million and annual couple the new booking business share business at within business on to very good cases, our ending basis, share our expanding $XX been in base. really is customer a has million we're of and of book many QX $XX our an preserving

Mircea Dobre

Okay.

in vertical still AGCO the in same improvement it's agriculture. hear from on. XXXX. that here, platforms half into quarter, demand sequentially market recognize from cuts quarter So We fourth at stretching basically you the first XXXX, we'll I the sort and XXXX, about the is standpoint. cutting got at you have commercial to not think that the But and see Access, at you get levels production issues, virtually from you're me, fourth aerial my beer, trough probably I of to other significant final and to least year vehicles We're question the of is, and the going day, that allows marks or the guidance to work telehandlers. the every production it's guess producing as production as least Oshkosh evident about Construction because CNH later a specific going think heard are you're

to is disposal that. 'XX, correct that this get to tools issue your like seeing manufacturing curious an XXXX. what quarter? perspective I'm on this do the I'm what at what in if as seems we're into into it you improve is relative assertion in my or margin to And is then that stretches overall your So margin stretching fourth have to

Jagadeesh Reddy

our in issues the demand end-user that their inventories to that raised customers significant past and dealer you few A many rates over months. have related of earnings talked publicly extensively excessive traded calls about financing are Yes.

appropriately our we to reflect So and structure adjusted have our cost capacities that.

XX% think, in see we continue year, to sequentially pickup, only even of it's is Construction in Going ag our all market we're and QX. total XX% that be next of would forward, but QX, to time CV quarter-over-quarter revenues, can expect sometime access first or as revenues, a our recover we QX cuts at cycle downturn, I X% construction where that, So sometime to an the after longer is recover long, recover end QX up back And is just powersports it, right? on to day though don't ag, rate other start total end access in research.Â Second as XXXX. based on still start first early ACT a expectation, So to up. in is CV market we end of period known powersports CV, levels. well is data half in we'll ag expect our interest market to well only ag powersports, the XX% take uptick late mentioned. a half, Right probably seeing we markets Having will published, the step just or to normalization expect X and hold. beat then right? said mentioned, Mig, least in call I is we market, X%

think all So that's day overall of need the I long, that's hear Yes, and sales. X% right? we is downturn, just ag about, only news think we to a in but our

Operator

from Jackson question comes Securities. with Ted next Northland The the of line

Edward Jackson

So a couple questions. of

is charge. So just The pretty of it most let's easy. $XXX,XXX like start

quarter? will be fourth SG&A will be as or your or operating Just inside curious, line singular far in a that And it to we line out item as the kind called of of are going expenses? see income above below just the

Todd Butz

shutting ultimate be look of as part mentioned will will as for we separately. will into be XXXX. that facility it the and above, down, we early No, out Certainly, preparing it potential be it an we in the sale called quarter, fourth

defined construed restructure clearly our as those separately be called will costs out be K. and and So in items

Edward Jackson

annual will that something And we in see on $X beginning of I Okay. $X is in, or in don't that to then million 'XX to expect the the million savings, first then of should quarter I Or is know, will And the 'XX? be builds fourth that assume will will onetime it in happen quarter kind shot? a it be time? that it, something of over

Todd Butz

No, next you'll we've away I QX call is interest. mid-quarter think let's see because, closed coming facility for good that into our of year, to completely that and positioned but right have again, it expectation hopefully, seen sale. And

And so hopefully, quarter in completely have that we the first that savings. can exit and

we And first should beginning so part that the again, in see of XXXX.

Edward Jackson

cost then we we when more on or about lines? goods line see sold would And more think OpEx of within that those savings, the the

Todd Butz

it savings. some headcount and reductions we other the did really cost of But which mentioned costs some plant direct the to be like Yes, related that then be sales We we've reposition that SG&A, that the fixed mostly of in bulk of line. on will will made. all is the

Edward Jackson

much you tell Could debt that with in to presentation to your you quarter. debt reduction? it you of used of went to a there kind things? in of that how us And there? settlement, will is and much how then those cash it pay that mentioned repurchased repurchase line? and on where flow already in then funds investing up you stock Peloton And show down with stock show it the up in the Where the see Will couple questions the we side of will

Todd Butz

a obviously, line of account. know, credit, it's have point, this we you a as At sweep

a that receive on So in any overnight. reduce and daily we collections go basis debt

share Jay we debt the yet are expect stock to intraday, a programmatic So to All the used those we some repurchase this the to and to -- stock looking allocate reduction in mentioned, repurchase. on but proceeds at quarter will repurchase, have for we of more that have deploy as fourth point. was we

to But the flow, through. up and cash will annual where as that proceeds financial as when that show statements think those in our flow that will operational to clearly in delineated be in relates well you it As disclosure line. where free went about XX-K, the cash as line our the

Edward Jackson

But flow. but was surprised up cash you're saying I that, that within operating by the show activities. little a free will for

Todd Butz

Yes.

Edward Jackson

going going of in half with comps fourth stuff, should out the return in quarter see your saying Is that 'XX got that tough roll as and the then you probably just some we growth And with third about starting first that guidance we of back should then as see growth it of prior something the we the half, Okay. mean just viewing terms year. sounds the XXXX. revenue in accelerate you're growth in it from you're through that as second I -- it like the we guidance to actual the some year. then would relatively assume that the And that maybe think quarter it into weak the half you've given and of have you're the just comps laying because a to of fact way the that second fair

Todd Butz

very would depiction a I we of that's Yes, fair expect. what say would

Operator

of comes question the line with from next Natalya The Citi. Boff

Unknown Analyst

question, growth year. the behalf presentation, Kaplowitz. X.X% I 'XX understand Can in Boff for of Andy I organic you is? Natalya Citigroup your first is in demand. the from kept of sales X.X% net citing softness guidance you on This revised you my But your noticed help customer us to why guess that

Todd Butz

That we that slightly we right, opportunities that, had. and organic X, you and is and of separate to we've and the market at separated new done, impact without that is try meaning the kind when has -- from destocking, look so the wins growth, that

it pace have to we're to potentially like year-over-year, on feel kind -- of still we continue will flat, up be So slightly.

to little So bit of destocking. we we were the might see that exclude trying year-over-year little be a impact better, but a of

Unknown Analyst

Got it.

specific end just maybe on a focusing then And Helpful. Okay. particularly market, powersports.

or you're implementing can despite talk macro you share? such that market about actions share but you outlook, initiatives You this market share, what who are the from? you're taking cited taking gain softer growing to gaining And market

Jagadeesh Reddy

is Natalya, gain. talked year. market a year. this these produce share in Similarly, we a That and mostly production new bringing Yes. of new vehicles customer existing we're program the at nature. we -- talking picked with brand-new in customers customer a into and of That programs about what on have are well. These went both side-by-sides beginning earlier up market customers about the powersports the customer win as also that

So those share a customers we are this year. X the good pretty gained have where

Unknown Analyst

just then Okay. question, my Helpful. free And on cash flow. last

good generation strong working of -- you this for pretty initiatives to the perspective, Are year-to-date, I'm and like flow? just optimizing capital? had right in what what are guidance generate to your free terms continue you flow Or free there? curious you maintained going year. cash from doing what's You are cash your you

Jagadeesh Reddy

Absolutely.

publicly As quarters, We discussed our our of focus we collecting our suppliers. terms MBX pulled X in Since and adjusting of with levers. XXXX capital, inventory. inventory. the couple We turns our inventories, our turns and around payable of program X.X ended faster at all ended of those we receivables reducing working past reducing XXXX, on outstanding our QX intense our

can you free managing flow that managing improvement our So is see our we're business we're working out cash all in and how that of generation. of level reading capital, how our in

Operator

team conference currently Instructions] at no [Operator are pass There questions waiting for would There to this I to time. our no over remarks. management questions are registered. closing the additional like

Jagadeesh Reddy

today. Vallum, Investor next We appreciate and questions, for or our progress you please thank Ryan joining we Neely call you updating you Noel at on again, of This MEC, support call. our Counsel. Should our Relations Stefan any forward your look Once our contact concludes to continued quarter. have

disconnect. now may You

Operator

concludes Conference your Mayville XXXX for participation, Engineering day. Earnings Company of rest you the your enjoy and the That Thank Call. Quarter Third

Mayville Engineering (MEC) 6 Nov 242024 Q3 Earnings call transcript